Network and Operational Planning Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights...

Network and Operational

Planning

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

14-2

Overview of network and operational planning

• Planning methodology• Phase 1: Problem

definition and planning• Phase 2: Data collection

and analysis• Phase 3:

Recommendations and implementation

• Supply chain analysis methods and techniques

14-3

Planning methodologies enable evaluation of options in response to customer behavior

• Decisions often require complex and data-intensive analysis– Complexity is due to

• Large no. of factors impacting total cost• Range of alternative solutions available

– Data-intensiveness is due to• Large amount of information required to evaluate each

alternative– E.g. range of service alternatives, range of cost assumptions, range

of operating technologies

14-4

Generalized planning methodology showing major phases of work

• Problem definition and planning

• Data collection and analysis

• Recommendations and implementation

Figure 14.1 Research Process

14-5

Problem definition and planning provides the foundation for the overall analysis

Feasibility assessment• Analyze the current situation• Develop supporting logic• Estimate the cost-benefit to proceed

Project planning• State objectives of proposed changes• State constraints to scope of study• Establish measurement standards• Select analysis techniques• Create a project work plan

14-6

Feasibility assessment begins with analysis of the current situation

• Requires an– Internal operational review– Market assessment– Technology assessment

• Tables in text illustrate topics of inquiry for this work– See Tables 14.1, 14.2 and 14.3

• Situational analysis should determine existing capabilities and help define improvement potential

14-7

Develop a supporting logic to integrate the findings from the current state analysis

• Identify the value proposition to justify investment in detailed research and analysis

• Critical fact-based evaluation of current procedures and practices

– What is working well?– What areas can we improve?

• Identify potential alternatives– Define current operations– Identify likely design alternatives– Suggest innovative approaches

• Keep, but prefer 2 data centers. Simplifies operations for same acquisition costs• NOTE: Modified this alternative to use as contingency if facility acquisition fails

3 Data Centers – Acquire New, DR in house

• Outsource provider does not guarantee recovery• Shared recovery over 1,000 miles does not work due to latency sensitive applications

3 Data Centers – Acquire New, DR outsourced

• Cost is too high compared with other alternatives• Time is too long compared with other alternatives

3 Data Centers – Build New, DR in house• Outsource provider does not guarantee recovery• Shared recovery over 1,000 miles does not work due to latency sensitive applications

3 Data Centers – Build New, DR outsourced

• Keep2 Data Centers – Acquire New, DR in house




2 Data Centers – Build New, DR in house



• Risk is not mitigated by remaining in existing facilities (common power grid, proximity to terrorist target)


Expand Site and Enhance Existing Facilities –DR outsourced


Expand Site and Enhance Existing Facilities –DR in house

Rationale DescriptionAlternative Description

• Keep, but prefer 2 data centers. Simplifies operations for same acquisition costs• NOTE: Modified this alternative to use as contingency if facility acquisition fails

3 Data Centers – Acquire New, DR in house




3 Data Centers – Build New, DR in house• Outsource provider does not guarantee recovery• Shared recovery over 1,000 miles does not work due to latency sensitive applications


• Keep2 Data Centers – Acquire New, DR in house




2 Data Centers – Build New, DR in house





Expand Site and Enhance Existing Facilities –DR outsourced


Expand Site and Enhance Existing Facilities –DR in house

Rationale DescriptionAlternative Description

14-8

Estimate the project’s potential benefits and risks

• Benefits should be estimated for– Service improvements– Cost reductions– Cost prevention– “Low hanging fruit”

opportunitiesIllustration of sample risks defined for each alternative

2 global data centers in US

RY – Close WHS – Upgrade(Test/DR)

WP – Close New site(Prod/Dev)

RY – Keep(Dev)

WHS – Upgrade(Prod/Dev)

WP – Upgrade(Test/DR)

WHS – Expand(Prod)

Expand Site and Enhance Existing

Facilities

3 global data centers in US

RY – Close WHS – Upgrade(Test/DR)

WP – Keep(Dev)

New site(Prod)

11

22

33

Risks• Collocated with two hazardous material sites (RY and WP)• Facility issues with RY (leaking roof)• RY data center in flight path for Linden/EWR airport• Limited expansion possibilities• High operational complexity drives down service quality• Sub-optimal DR• Concentrated proximity to Manhattan and Philadelphia• Same power grid for all sites

Risks• Collocated with two hazardous material sites (RY and WP)• Facility issues with RY (leaking roof)• RY data center in flight path for Linden/EWR airport• Limited expansion possibilities• High operational complexity drives down service quality• Sub-optimal DR• Concentrated proximity to Manhattan and Philadelphia• Same power grid for all sites

Risks• Disruption, transition and change management (some people

issues)• Network impact (mitigated by deliberate design)

Risks• Disruption, transition and change management (some people

issues)• Network impact (mitigated by deliberate design)

Risks• Collocated with one hazardous material site (WP)• Disruption, transition and change management (less than

alternative 2)• Network impact (mitigated by deliberate design)

Risks• Collocated with one hazardous material site (WP)• Disruption, transition and change management (less than

alternative 2)• Network impact (mitigated by deliberate design)

High

Low

Medium

14-9

Project planning involves these specific tasks

• State objectives of proposed changes

• State constraints to scope of study

• Establish measurement standards

• Select analysis techniques• Create a project work plan

14-10

Statement of objectives should be stated specifically and in measurable terms

• Should define market segment, the time frame for change and specific performance expectations

• Example objectives– Provide 100 most profitable customers

with perfect order performance on all orders

– All other customers receive• 99% inventory availability for category

A products• 95% inventory availability for category

B products• Delivery of 98% of all orders within 48

hours of placement

14-11

Statement of constraints should identify restrictions placed by senior management

• Defines the specific organizational elements to be retained in current system

– Facility, alliance, resource, system, procedural or channel constraints

• Common examples– Hold existing manufacturing facilities and product mix constant– Omit some divisions from a centralized logistics system

• “Why study things we don’t plan to do anything about?”

14-12

Measurement standards direct the analysis by listing assumptions about cost and performance

• Standards should adequately reflect a total system performance view– Avoid a suboptimal focus

on logistics functions• List assumptions that

support standards• How is each cost

component to be quantified?

14-13

Develop a project work plan for the remaining phases of the study

• Schedule of tasks• Resource requirements

– Personnel– Data collection and

analysis– Analysis tools

• Meeting schedules– Updates to share progress

with executives

Update 2 to ISLT(12 Aug)

Update 1 to ISLT

Final Case(29 Aug)

14 Jul 21 Jul 28 Jul 4 Aug 11 Aug 18 Aug 25 Aug7 Jul30 Jun23 Jun

Data Center Data Center Facilities Facilities

Requirements Requirements ProjectProject

Sep

Final documents

(9 Sep)

Describe the Need in Business Terms

Evaluate Alternatives

Communicate Progress and Results

Kickoff(23 Jun)Kickoff(23 Jun)

Workshop(7 Jul)

Workshop(7 Jul)

Workshop(18 Jul)

Workshop(18 Jul)

Workshop(21 Jul)

Workshop(21 Jul)

Workshop(29 Jul)

Workshop(29 Jul)

Workshop(14 Aug)

Workshop(14 Aug)

Workshop(27 Aug)

Workshop(27 Aug)

Preview Case(25 Aug)

Illustration of sample project work plan with meeting schedule

14-14

Data collection and analysis activities

Assumptions and data collection• Define analysis approach and select

techniques• Define and review assumptions• Identify data sources• Collect data• Validate data

Analysis• Develop questions for analysis• Validate the baseline analysis• Analyze each alternative• Complete sensitivity analysis

14-15

Analytical approach uses numerical tools to evaluate each alternative

• Spreadsheet and statistical software availability have increased use of these techniques

• Examples– Determine the inventory/service

trade-offs using safety stock and fill rate formulae

– Determine the order cycle time that required to deliver 95% of customer orders

– Determine the transportation dollar benefits for consolidating LTL orders into TL orders

14-16

Simulation is widely used, particularly when significant uncertainty is involved

• Conduct experiments using a physical or numerical model of the real system– Understand overall system

behavior over time– Use to evaluate operations under

different strategies• Appropriate when

– Limited number of variables are evaluated

– Need a more realistic representation of the process

– Need customer order or SKU level of detail

14-17

Optimization uses linear programming to evaluate and select best alternative

• Appropriate for– Problems where objectives and

constraints can be expressed in mathematical terms

– Alternatives involving sweeping changes to the logistics systems

• Limitations include – Demand on computing resources– Models are smaller in scope than

simulations• Example

– Determine the best location for distribution facilities subject to meeting supply, demand, and delivery time constraints

14-18

Define and review assumptions

• Business– E.g. relevant market, consumer

and product trends, resource availability, and competitive actions

• Management– E.g. alternative warehouse

locations, transport modes, ownership arrangements, logistics processes, fixed and variable costs

• Analysis– Define constraints and limitations

to fit the problem to the technique selected

14-19

Detailed description of assumptions by category

Table 14.4 Assumption Categories Elements

14-20

Identify data sources to fit the analytical technique

• What are the sources for– Sales and customer

orders?– Specific customer data that

includes a spatial dimension?

– Manufacturing and purchasing costs?

– Transportation data?– Benchmarking data on

competitive capabilities and flow?

14-21

Analysis involves use of technique and data to evaluate logistics alternatives

• First, develop questions about alternatives and the range of acceptable uncertainty

• Second, validate the technique and model using validation data

• Third, repeat the analysis for each alternative to be evaluated

• Finally, the best-performing alternatives can be evaluated for sensitivity to other factors or scenarios

14-22

Recommendations and implementation

Development of recommendations• Identify best alternative• Estimate costs and benefits• Develop risk appraisal• Develop presentation

Implementation • Define implementation plan• Schedule implementation• Define acceptance criteria• Implement

14-23

Recommendations to management are developed through critical review of the analysis results

• Identify best alternative• Estimate costs and

benefits• Develop risk appraisal• Develop presentation

Fit to Principles

Slow Fast

High

Low

Speed to Execute

$95MM

Expand & Enhance Existing - Build

$95MM

Expand & Enhance Existing - Build

$76MM

Expand & Enhance Existing –Build & Outsource DR

$76MM

Expand & Enhance Existing –Build & Outsource DR

2 Data Centers – Co-locate & Outsource DR2 Data Centers – Co-locate & Outsource DR

3 Data Centers -Build

$115MM

3 Data Centers -Build

$115MM

3 Data Centers – Build & Outsource DR

$91MM


$91MM

2 Data Centers - Build

$133MM

2 Data Centers - Build

$133MM


$114MM


$114MM

3 Data Centers -Acquire

$49MM


$49MM

$49MM


$49MM


Preferred Alternatives

3 Data Centers – Co-locate & Outsource DR3 Data Centers – Co-locate & Outsource DR

Sample presentation visual showing best alternative

14-24

Implementation is necessary to realize any business benefits from the recommendations

• Define implementation plan– Events, activities and decisions

with dependent relationships• Schedule implementation

– Timeline of plan details– E.g. acquire facilities, negotiate

agreements, mobilize teams, and conduct training

• Define acceptance criteria– How will we measure success?

• Implement the recommendation– Establish controls to monitor

plan and acceptance criteria

14-25

Methods and techniques of analysis for supply chain decisions

• Design decisions• Design logic• Inventory decisions• Transportation decisions• Freight lane analysis• Inventory analysis

14-26

Design decisions focus on selecting number and location of plants, warehouses and other nodes

• Determine total costs and trade-offs for alternative channel strategies, activity outsourcing or offshoring decisions

• Typical questions include– Where should plants and distribution

centers be located?– Which market areas should be served

by each distribution center?– Which product line should be stocked

at each warehouse?– What marketing channels should be

used to serve international markets?– Which service providers should be

used for long-term contracts?

14-27

Design logic defines the method used to select from a number of available options

• Optimization models consider a range of complex data to evaluate alternatives– Aggregate customer demand– Aggregate supply availability– Product and information flows at each stage– Transportation alternatives and costs– Other variable costs

• Major problems with linear programming– Need explicit functional relationships for full range of design options– Only as valid as the design problem definition– Often limited by number of stages in the supply chain and problem size

14-28

Illustration of scope of typical supply chain analysis

Figure 14.2 Total Cost Analysis Approach

14-29

Data requirements for supply chain analysis include the following key elements

• Markets defined by geographic segments

• Products defined by the number of stock keeping units required

• Network defines channel members and locations including current and proposed

• Customer demand as shipment volume by market geography

• Transportation rates for inbound and outbound volume

– For each shipment size– For each potential transportation link

• Variable and fixed costs• Tax incentives

14-30

Illustration of how US might be segmented in market areas

Figure 14.3 Supply Chain Network

14-31

Illustration of a network definition for channel of industrial and retail customers

Figure 14.4 Channel Network Example

14-32

Evaluation of alternatives

• Baseline analysis is done first to validate cost and establish credibility of the analysis

• Other alternatives are modeled and analyzed

• Results can be compared to baseline to identify performance improvements

Baseline Model

Alternative Models

14-33

Illustration of baseline network with two plants and two warehouses

Figure 14.5 Base Supply Chain Network

14-34

Illustrates an alternative supply chain with 3 plants and 4 warehouses

Figure 14.6 Alternative Supply Chain Network

14-35

Concerns of supply chain design tools

• Treatment of inventory carrying cost

• Assumptions of shipment sizes over range of alternatives– Constant or varies with change in

number of warehouses

• Focus of analyses– Expanding boundaries of supply

chain members– Minimize total cost vs. maximize

profit– Periodic vs. ongoing

14-36

Illustration of the analytic inventory concept to make inventory decisions

Figure 14.7 Analytic Inventory Overview

Results of analysis

14-37

Illustration of the simulation approach to inventory analysis

Figure 14.8 Inventory Simulation Overview

Results of analysis

14-38

Transportation decisions range from strategic to tactical in scope

• Strategic routing decisions– Identify long-term fixed transport

modes• Monthly or yearly routes

• Tactical routing decisions– Allocate resources for the short-

term• Daily or weekly routes

• Objective is to minimize the combination of vehicles, hours and miles required to deliver product

14-39

Illustration of typical transportation problem

Figure 14.9 Typical Routing or Delivery Problem

14-40

Transportation analysis techniques

• Heuristic approaches– Use rule-of-thumb techniques to

sequentially add and delete stops• Exact approaches

– Use linear programming to identify best routes

• Interactive approaches– Use simulation, cost calculator or

graphics capability to support interactive decision process

• Combination approaches– Blend of the three approaches is

very effective

• Criteria for evaluating approaches– How general is the

approach?• E.g. special situations,

multiple depots, time windows, vehicle capacities

– How accurate is the approach?

• Is it a close approximation of performance characteristics?

14-41

Data requirements for transportation analysis

• Network defines all possible routes

• Demand data defines periodic customer pickup and delivery requirements

• Operating characteristics define– Number of vehicles– Vehicle limitations– Driver constraints– Operating costs

14-42

Freight lane analysis seeks to balance volume between origin and destination points

Figure 14.10 Example of Triangular Freight Lane

Table 14.6 Freight Lane Analysis of Monthly Movements

Results of analysis• Develop additional volume between

Cincinnati and Chicago– Move product sources to Chicago– Alliance with shipper with no back-

haul

Results of analysis• Develop additional volume between

Cincinnati and Chicago– Move product sources to Chicago– Alliance with shipper with no back-

haul

14-43

Illustration of inventory analysis showing key results for management review

Table 14.7 Typical Inventory Analysis Report

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